Ball back in gov’t court

Lawmaker Claudio Lozano seen speaking in the Lower House of Congress last year.

Confusion lingers, opinions remain divided over next move, as 30-day grace period begins

Experts and lawmakers yesterday gave diverse recommendations amid persisting uncertainty regarding what strategy the government will take up to avoid a new default before the July 31 deadline to simultaneously pay discount coupon bonds and holdout bondholders led by Paul Singer’s NML Capital.

Judge Thomas Griesa ordered the Bank of New York to send the the US$539 million deposited by Argentina to pay restructured bondholders to be returned to the country, and with the clock ticking, the government once again has the ball in its court.

Lawmaker Claudio Lozano said the New York bank must be removed as payment agent, to be replaced by an Argentine bank, while Eugenio Bruno, a lawyer who represents bondholders said the government must seek to agree on payment after December 31.

With the Cristina Fernández de Kirchner administration keeping its cards close to its chest, Congressman Claudio Lozano (Unión Popular) said that Judge Thomas Griesa’s ruling against the country was unacceptable, suggesting that Argentina remove the Bank of New York (BONY) as its payment channel to restructured bondholders.

“Argentina deposited the money and the BONY, which is the paying agent, and because it owes fidelity to Griesa, wasn’t able to fulfill its role, which is to transfer the funds sent by the government to bondholders,” he told Radio Mitre.

Therefore, the country has the right to “request the bank’s resignation and replace it with another,” such as the Central Bank (BCRA) or Banco Nación.

The possibility of removing the Bank of New York as payment agent is farfetched, however, as even if such a clause exists in the trustee contract with Argentina, the country would have to take legal action in the US district, where the bank would argue it simply respected a legal order from one of its courts, a US lawyer familiar with the holdout litigation told the Herald yesterday.

“This is the exit strategy the government has to refrain from recognizing a ruling that increases the country’s debt to an absolutely unpayable level,” Lozano argued.

The lawmaker said that after the bank is removed, the government could proceed to remove the bonds from US jurisdiction entirely.

The latter would require a majority consensus by holdouts, and would be large feat in 30 days considering many bondholders are individuals spread around the world.

Indeed, if modifying payment channels to shield funds against US court interference was a viable strategy, it would have been done before, hence the “technical” characteristic of the potential default at July’s end.

Even if the objective of removing the BONY was achieved, the lawyer added, the jurisdiction of the bonds would still lie in New York, and the new agent, whether the Central Bank or Banco Nación, would require the list of creditors that the BONY would be unlikely to provide.

Negotiating into the New Year

Eugenio Bruno, legal counsel to bondholders, wrote in an opinion piece in La Nación published yesterday that the government must seek out a non-binding document to pay holdouts after December 31, when the Rights Upon Future Offers RUFO) clause expires.

This would certainly cover Argentina against equal payment demands from restructured bondholders, but wouldn’t plug the hole that would be opened by “me-too” holdouts, who have yet to file suits against the country only because Judge Griesa has temporarily stopped them from doing so.

Bruno claimed these holdouts — who refused the debt swaps of 2005 and 2010 and waited for the pivotal lawsuit brought forth by NML Capital, Aurelius Management and other creditors to be resolved by the US Supreme Court — attempted to file two different cases against the country last week.

He added that what is owed to the holdouts as a whole rises to US$24 billion, thus differing from the government’s figure of US$15 billion.

The US-based lawyer consulted by the Herald said his law firm had once looked at general bond inventories and registries and that the figure was closer to the government’s estimate.

With several numbers representing diverse interests flying about, “whether US$15 or US$24 billion, the amount wouldn’t be payable,” he said.

Bruno was more optimistic, arguing that significant progress in negotiations this month could lead to the holdouts and Argentina to jointly request a new stay from Judge Griesa to allow for restructured bondholders to be paid without a default being triggered.

“The terms of an agreement (that would be signed definitively in 2015) would be applied to all other holdouts, and the new bonds (as payment) would have a broad and therefore profound secondary market that would prop up their prices.”

These new long-term bonds, which would be complemented by a cash payment, would bring “fresh cash for energy works at low rates, because the financial horizon would be completely different.”

The possibility of taking the case to the International Court of Justice in The Hague would also be wishful thinking, as the US Executive would have to accept subordinating its Judiciary to the jurisdiction of the international tribunal.